Midterm Essay Topic:

From a spending model perspective, explain the causes of a recession.

To get you started, consider that our recent recession seems to demonstrate that expenditures and incomes depend on each other. If markets do not self-adjust, how can a decline in spending lead to a negative process that ruins an economy? (Consider implications of gaps in the "Keynesian Cross" and/or the "Aggregate Demand/Aggregate Supply Diagram" to illustrate your points.)

Hints -- Within your answers, consider the following:

--Identify and summarize the market dynamics triggered by changes in leakages and injections.

--What role do measures like GDP, unemployment and inflation play in different scenarios?

--How do propensities and multipliers, and even expectations affect the outcomes?

At the top this is the subject and at the bottom my writing. I would like me to slurry it to you and give myself some criticism. if there are things to add or change. Thank you for your help and plz I need it for Tonight at 11pm

Introduction

A recession is a period typically of decline in general economic activity. This happens When an economy experiences a decrease in its gross domestic product for two consecutive quarters. Recession can be a significant decline in the economy, lasting more than a few months, normally visible in realGDP, real income, employment, industrial production, and wholesales- retail sales . Considering that our recessions seem to demonstrate the expenditure and income depend on each other and with implication on gaps in the "Keynesian cross and the Aggregate Demand/ Aggregate supply Diagram" . Based on the market dynamics triggered byleakages and injections, the effect of some measures like the GDP, Unemployment with inflation in different scenarios. Also with discussion how propensities and multipliers, and even expectations thataffect the outcomes willbe explained in this essay to knowthe causes of recession.

Body paragraph

Keynesian economics is based on two main ideas. We have aggregate demand is more likely than aggregate supply to be the primary cause of short-run economic events like a recession. Also we have wages and prices can be sticky, and so, in an economic downturn, unemployment can result.According to the Keynesian diagnosis, recessions occur when the level of household and business sector demand for goods and services is less than what is produced when labor is fully employed. The intersection of supply and aggregate demand occurs at a level of output less than the level of GDP consistent with full employment.Therefore downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants. Aggregate demand which is the collective demand of the whole economy states the income and expenditure level. The greater the demand the more the more is expenditure and more is the income and vice versa. When recession is presente business cycle the most affected market factor is the aggregate demand. In general when aggregate demand continues to fall, thisaffects the cycle ofpattern of expenditure, income and demand in the same manner. This forms a vicious circle where the demand keeps falling as a result of lower expenditure and lower income. This all happens when market factors do not adjust on its own. Lower prices can boost aggregate demand. However, at the time of recession there is a lower demand with lower price and lower supply. This procedure continues and does not adjust until the government takes action and implementscertains policies to stimulate the economy. As an example the coronavirus pandemic impacts our actual economy where government action is very important. Leakages reduce the flow of income. Injection means the introduction of income into the flow. When the households and firms borrow savings, they constitute injections. Injection increases the flow of income.

The leakages can affect the economy. Non-consumption uses of income savings , taxe ,and imports are "leaked" out of the main flow. This reduces the money available throughout the rest of the economy. In the circular flow model, injections into the economy include investment, investment, government purchases, and export while leakages include savings, taxes, and imports. The circular flow of economic activity is a model showing the basic economic relationships within a market economy. It illustrates the balance between injection and leakages in our economy

Measures like GDP, unemployment and inflation play a very important role in the economy. Gross Domestic Product is the total output product of the economy. It is the level measure of the value added created through the production of goods and services in a country during a period. while inflation is defined as a quantitative measure of rate at which the average price level of a basket of selected goods and services increases the economy over some period of time. It can be the rise in the general level of prices where a unit of currency effectively buys less than the precedents periods. Also unemployment is measured by the unemployment rate, which is the number of people who are unemployed as a percentage of the labour force. For these reasons we can say that those differentscenarios show thatGDP, Unemployment and inflation have an impact in the economy of a country.

In addition the multiplier effect refers to the increase in final income arising from any new injection of spend. The size of the multiplier depends upon the household's marginal decision to spend, called de marginal propensity to consume (mpc), or to save, called the marginal propensity to save. With the situation actually we tend to see that citizens are wailing to save their money and spend which can affect the economy because if households are scared tospend and businesses are close that can be a big issue for the economy so the government needs to do something. In us right now with the COVID 19 with the lockdown nothing was moving in the countrybusinesses were close with a certain number of layoff ,households were facing a lot of problems like foods, rent , job, because when businesses are close unemployment rate will be high and that affects the economy. Therefore the government will have pressure to do something.

Conclusion

We can say that economic recession is caused by a loss of business and consumer confidence. As confidence recedes, so does demand. Recession is a tipping point in the business cycle when ongoing economic growth peaks, reverses, and becomes an ongoing economic contraction.a decline in the GDP is often listed as cause of a recession. However it's more of a warming signal that a recession is already underway. The typical cases of recession can be loss of confidence in investment and the economy, high interest rates a stock market